Professional Documents
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Currency Derivatives
Currency Derivatives
5
Currency Derivatives
A5 - 2
Forward Market
A5 - 3
Forward Market
A5 - 4
Forward Market
A5 - 5
Forward Market
A5 - 6
Forward Market
A5 - 7
Forward Market
A5 - 8
Currency Futures Market
A5 - 9
Currency Futures Market
A5 - 10
Currency Futures Market
A5 - 11
Currency Futures Market
A5 - 12
Currency Futures Market
A5 - 13
Currency Futures Market
A5 - 14
Currency Futures Market
A5 - 15
Currency Futures Market
A5 - 16
Currency Futures Market
A5 - 17
Currency Futures Market
A5 - 18
Currency Futures Market
A5 - 19
Currency Options Market
A5 - 20
Currency Options Market
A5 - 21
Currency Call Options
A5 - 22
Currency Call Options
A5 - 23
Currency Call Options
A5 - 24
Currency Call Options
A5 - 25
Currency Call Options
A5 - 26
Currency Put Options
A5 - 27
Currency Put Options
A5 - 28
Currency Put Options
A5 - 29
Currency Put Options
A5 - 30
Conditional Currency Options
A5 - 31
Conditional Currency Options
A5 - 32
European Currency Options
A5 - 33
Efficiency of
Currency Futures and Options
• If foreign exchange markets are efficient,
speculation in the currency futures and
options markets should not consistently
generate abnormally large profits.
• A speculative strategy requires the
speculator to incur risk. On the other hand,
corporations use the futures and options
markets to reduce their exposure to
fluctuating exchange rates.
A5 - 34
Impact of Currency Derivatives on an MNC’s Value
Currency Futures
Currency Options
m
n
E CFj , t E ER j , t
j 1
Value =
t =1 1 k t
E (CFj,t ) = expected cash flows in
currency j to be received by the U.S. parent at
the end of period t
E (ERj,t ) = expected exchange rate at
which currency j can be converted to dollars at
the end of period t A5 - 35
Chapter Review
• Forward Market
¤ How MNCs Use Forward Contracts
¤ Non-Deliverable Forward Contracts
A5 - 36
Chapter Review
• Currency Futures Market
¤ Contract Specifications
¤ Comparison of Currency Futures and Forward
Contracts
¤ Pricing Currency Futures
¤ Credit Risk of Currency Futures Contracts
¤ Speculation with Currency Futures
¤ How Firms Use Currency Futures
¤ Closing Out A Futures Position
¤ Transaction Costs of Currency Futures
A5 - 37
Chapter Review
A5 - 38
Chapter Review
A5 - 39
Chapter Review
A5 - 40